Once sales tax nexus is established, the next critical question is how much financial exposure exists. Many businesses delay this step because they assume the process will be complex or require perfect historical data. In reality, exposure estimation can be performed using reasonable assumptions and available transaction history.
This example walks through how a hypothetical multi-state seller could estimate unpaid sales and use tax exposure after discovering nexus obligations in multiple states.
The Scenario
Consider a growing multi-state business selling taxable products directly to customers across the United States. Over several years, the company expanded rapidly through online sales and third-party platforms.
The business recently identified that it had crossed economic nexus thresholds in several states but had not registered or collected sales tax in those jurisdictions. Leadership now needs to understand the potential financial impact before deciding how to proceed.
Why Exposure Must Be Quantified
Without estimating exposure, businesses are forced to make compliance decisions blindly. Exposure analysis helps determine whether liability is immaterial, manageable, or significant enough to require remediation planning.
In this scenario, the business understands where nexus exists but lacks visibility into unpaid tax, penalties, and interest. Estimating exposure becomes the foundation for informed decision-making.
How Exposure Is Estimated
Exposure estimation begins with historical sales activity in states where nexus has been established. Revenue data, transaction counts, and time periods are reviewed and paired with applicable state tax rates.
Businesses typically begin this process after identifying nexus using a sales tax nexus mapping tool. TaxMap’s Sales Tax Nexus Map identifies the states that should be included in exposure analysis before liability is calculated.
Once nexus states are known, a sales tax exposure calculator can be used to estimate unpaid tax, penalties, and interest across those jurisdictions.
Learn more about identifying nexus
Learn how exposure is calculated using the Sales Tax Exposure Calculator
The Outcome
After running an exposure analysis, the business gains a clearer understanding of its financial risk. Some states show minimal exposure due to lower sales volume, while others present material liability that requires attention.
The analysis also highlights uncertainty ranges, allowing leadership to understand best-case and worst-case scenarios rather than relying on a single number. This clarity helps prioritize next steps and allocate resources appropriately.
Validating Taxability
Exposure estimates must account for whether products or services were actually taxable in each state. Many businesses assume all revenue is taxable, which can significantly overstate liability.
To refine exposure estimates, businesses validate product and service taxability by jurisdiction. This step ensures that only taxable transactions are included in liability calculations.
Taxability validation can be performed using TaxMap’s Taxability Engine
Planning Next Steps
Once exposure is quantified and taxability is validated, businesses can evaluate how to move forward. Options may include registering and filing on a go-forward basis, pursuing voluntary disclosure agreements, or working with a CPA or tax advisor.
Planning these steps before contacting tax authorities allows businesses to choose the most appropriate compliance path. TaxMap’s VDP Planner helps evaluate voluntary disclosure and cleanup options after exposure has been quantified.
Learn more about remediation planning
How This Fits Into the Overall Workflow
This example shows why exposure estimation is a critical step between identifying nexus and taking action. Without quantifying liability, businesses cannot make informed compliance decisions. An overview of all sales and use tax analysis tools can be found on the TaxMap Tools page
Understand your sales tax exposure before making compliance decisions.
Use TaxMap to estimate unpaid sales and use tax liability, validate taxability, and plan next steps with confidence.
